Markets

Virgin Galactic Has Plenty of Buzz, But It Needs Revenue

InvestorPlace - Stock Market News, Stock Advice & Trading Tips

Virgin Galactic (NASDAQ:SPCE) stock continues to move slowly upward on news releases and future potential. The company is not a value investors’ pick owing to its nascence, and the fact that it hasn’t proven much yet.

Virgin Galactic (<a href=SPCE) banner hanging on the New York Stock Exchange building to celebrate its IPO." width="300" height="169">Source: Christopher Penler / Shutterstock.com

However, the general public remains interested in the company, and rightly so. Space is an amazing frontier, and the ability to travel there in a commercial capacity is fascinating.

The public will remain interested in the developments coming from the company as being something truly pioneering. However, investors should know that it will be a few years before this stock settles down.

Virgin Galactic is a long way from profitability. Until SPCE stock has proven profitability, the company will remain interesting based on space flight alone. 

SPCE Stock Has Several Catalysts

Investors won’t be able to know exactly how Virgin Galactic’s second quarter went for a few weeks, when the company releases earnings on Aug. 3. However, interesting news that will affect the share price is coming out of the company otherwise.

On July 15, Virgin Galactic announced that it has hired a new CEO. Michael Colgaizer, previously a Disney (NYSE:DIS) exec, will replace George Whitesides, who was the company’s first CEO. Whitesides remains with the company in a business development role. 

Shares moved up 13% on the announcement, given Disney’s ability to provide world-class experiences.

The company is also continuing to conduct test flights at its new Spaceport America location in New Mexico.

Virgin Galactic conducted its second test flight from Spaceport America as it ramps up efforts toward regular commercial spaceflight service. The exact date remains unknown, yet the company will likely begin taking passengers into space in 2021. 

Setting Stage for Multiple Revenue Streams

Virgin Galactic has been presenting itself as a provider of commercial spaceflight for the past decade. This is where investors have presumed the company will generate revenues from.

However, it’s become clear in the past few months that the company is also trying to diversify its potential streams of revenue. 

In early May Virgin Galactic entered into the Space Act Agreement with NASA. The two will collaborate to focus on high mach, point-to-point technologies. Importantly, this is focused on air travel and looks to improve efficiencies related thereto. 

The company released news that it is also preparing another focus area in late June. The project aims to provide private astronaut missions to the International Space Station. This is also part of the Space Act Agreement. 

This news is interesting for the possibilities it opens for the company and space commercialization in general. Yet, investors in SPCE should be concerned. These efforts have potential to result in revenue down the line. Perhaps, significant and company defining revenue streams. But this is not what investors are buying into when they think of Virgin Galactic. Primarily they are looking for commercial space flight somewhat akin to current air travel, but in space. 

Virgin Galactic Needs Revenue

Investorplace’s Mark Hake wrote about the same concerns regarding costs following the company’s ISS announcement. We both very much agree that the company’s primary concern is revenue and that these new projects have great potential, sure, but also high costs.

Simply put, space flight is incredibly expensive, and this isn’t as simple as adding a stop to a bus route. 

The company is already valued highly as it is and has not generated much revenue. Investors who buy in now are paying for a piece of an incredible company. But they should understand that it hasn’t done much more to boost its bottom line than make refundable bookings.

This isn’t to minimize the company or its management. There’s little doubt in my mind that they’re brilliant scientists, engineers, and skilled businessmen alike.  

Verdict on SPCE Stock

I’m excited to see where it goes and certainly hope that commercial space flight becomes a new norm. I also hope this company succeeds in pioneering it.

But investors shouldn’t purchase until they can see revenue. And now investors will have to judge revenues and costs from multiple streams thereof.

Of course, the company could really rocket upward after that takes place. Yet, I think in the near term, prices will remain steady as markets digest these realities. Investors would do well to watch this company in terms of revenues and judge it as an investment based on that.

Keep watching Virgin Galactic because it is on the leading edge of a pioneering industry, but don’t jump into a position on that alone. 

As of this writing, Alex Sirois did not own a position in any of the aforementioned stocks.

The post Virgin Galactic Has Plenty of Buzz, But It Needs Revenue appeared first on InvestorPlace.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

SPCE DIS

Latest Markets Videos

InvestorPlace

InvestorPlace is one of America’s largest, longest-standing independent financial research firms. Started over 40 years ago by a business visionary named Tom Phillips, we publish detailed research and recommendations for self-directed investors, financial advisors and money managers.

Learn More